The decision to become a subcontractor is perhaps an easy one to
make--but as any seasoned entrepreneur will tell you, securing that
coveted contract is an entirely different story. That's because
the subcontracting process itself--from the initial invitation or
query to contract award--often involves a tangle of complexities,
any one of which can deter even the most ambitious amateur. From
increasing global competition to Fortune 100 vendor consolidation,
challenges run rampant. But the good news is, small businesses can
learn to compete--and win.

According to the most recent figures from the National
Association of Purchasing Management (NAPM), an organization for
purchasing and supply management professionals, 54 percent of its
members spent between $1 million and $10 million on purchasing in
1996, and 10.4 percent of its members surpassed the $50 million
mark. That means subcontracting is and will most likely continue to
be big business for entrepreneurs, despite the challenges involved.
The advantages of a successful subcontracting relationship are more
than worth the effort: You'll gain invaluable experience,
expand your business, and open the doors to more big business and
government contract relationships.

So what's the best way to get started? That depends not only
on your product or service, but also on the type of company
offering the contract. Many specifically seek small-business
participation to meet threshold requirements, often because
they're working on projects for the federal government. When
bidding on a contract, says Gary Engebretson, president of the
Contract Services Association of America, your first three steps
should be:

*providing the procurement representatives with detailed
information about your qualifications

*calling back and keeping the pressure on, but in a gentle way,
and requesting a personal visit

*and being patient; the contractor may be seeking future, not
current, prospects. Sell yourself to that corporation before a job
even becomes available.

Another thing to bear in mind--especially if you've been
down the subcontracting path before and have been unsuccessful--is
that important changes have occurred in the government sector over
the past few years. Consider recently passed legislation on federal
contract bundling that Engebretson says is favorable to small
business. (For more on the legislation, see "Pulse,"
March.) While smaller contracts are often bundled into one large
contract--making it difficult for all but Fortune 1000 companies to
get their teeth around the bid--the law now requires that 23
percent of all federal contracts be handled by small,
entrepreneurial firms. Businesses that are awarded contracts that
are part of a bundle carry responsibility for only a portion of the
project, rather than the entire thing.

Businesses should also keep in mind the recent trend of
businesses relying on subcontractors' past performance when
awarding contracts. Unfortunately, that has a negative impact on
small businesses that have yet to get their subcontracting feet
wet. On the flip side, if subcontractors do quality work, they can
acquire a good reputation, which may lead to more and larger
contracts. "One of the best things a small company can do is
to do quality work," says Engebretson.

And of course, the Internet will play a large role in the future
of subcontracting. As purchasing managers and government agencies
move toward the use of e-commerce and data interchange, potential
subcontractors will eventually be able to submit proposals and be
evaluated electronically. So if you don't have a Web site yet,
it's time to get one.

One final note: Some experts speculate that California's
recent abolition of affirmative action in state contracts will have
negative implications nationwide, making an already difficult
process even worse. But for now, it serves as another reminder for
small businesses to keep networking, stay aware of available bids
and always strive for quality.

The Essentials

Although landing your first contract will undoubtedly be a
challenge, you can take steps to improve your chances of winning
it. Those steps include:

1. Establish a networking system. Talk to other business
owners, and spread the word that you're interested in
subcontracting. Make as many contacts as you can.

2. Get the information out. Slick, informative brochures
about your business are a must. Without those, contractors will
move on to the next candidate.

3. Build a solid reputation. This is probably your most
important task--without it, you'll surely be on the road to
nowhere. Pay your bills on time, treat your employees well,
complete all your projects by their deadlines, and institute
quality-control procedures.

4. Be financially sound. Although small companies have a
lot of fiscal constraints, establishing a strong financial
foundation--in operating profits, net income, cash flow, history
and future projections--will help you considerably in landing
contracts.

5. Communicate with contractors before projects become
available. Target the companies you want to work for, and convey
your interest and qualifications. Because of this previous contact,
when a project becomes available, they'll think of you.

6. Remember that performance is linked to getting new work.
The benefits are twofold: If you do an outstanding job, larger
firms or prime contractors will seek out your business based on
your reputation. And if past clients include the federal
government, they'll recommend your company to prime contractors
on the hunt for small-business suppliers.

7. Keep your prices flexible and competitive. This is
important because landing contracts is becoming more and more of a
challenge--and the recent rise in global competition only makes
things trickier. To set your business apart, establish attractive
pricing, even if it means you won't make as much money in the
end. "[Small businesses] may not be able to make as much
profit as they want on a particular contract, but they might get
the contract more easily [with lower prices]," says Robert S.
Frey, author of Successful Proposal Strategies for Small
Businesses (Artech House).

8. Be selective about the contracts you pursue. Don't
aim for every contract that comes along. Winning a contract takes
real dedication and planning. According to Frey, because most small
businesses neglect to tailor their efforts, out of every 10
contracts they pursue, most will win only four.

9. Establish an ongoing strategic alliance, but don't
pursue relationships with just anyone. Frey says your efforts will
pay off if you develop well-thought-out, well-researched
relationships with a few select businesses.

10. Know your client inside and out. Identify the decision
makers. Find out how they put contracts together. Understand the
decision-making process, and know all the steps involved. In the
contracting world, ignorance is definitely not bliss.

Wanted: A Lasting Relationship

The firm: Based in Ft. Worth, Texas, Burgoon Co., a
supplier of medical, safety and laboratory supplies (such as
beakers, flasks and chemicals), was launched in 1988 by Nita
Burgoon. She won her first subcontracting award from Bethesda,
Maryland, aerospace manufacturer Lockheed Martin in 1992 and today
continues to supply Lockheed's quality control, industrial
hygiene and materials process control production facilities.

The slice: With her Lockheed contract, Burgoon expects to
bring in about $500,000 this year. Her overall sales projections
for 1998 are $4 million.

The criteria: In addition to offering quality products,
consistent deliveries and competitive prices, Burgoon strives to
provide her customers with the little extras--such as creativity,
patience and persistence.

The hook: "I think part of being a successful
entrepreneur is finding a niche market and then filling that
niche," says Burgoon, 47. That's exactly what she did when
Lockheed was dangerously close to shutting down its quality control
assembly line. Burgoon was able to provide a solution that helped
Lockheed avoid an assembly line closure--and in the end, she scored
a contract that hadn't previously existed.

The spin: Strong subcontracting relationships will not
only expand your business with a corporation but will also lead to
new opportunities with other businesses. And when they're
long-lasting, you'll surely benefit. "More often [than
not], smart buyers understand that the value added by a company
such as mine is worth the loyalty they give us," Burgoon
says.

The connection: Many large corporations have a
small-business center or someone you can talk to about contracts.
Burgoon urges entrepreneurs to "meet them, work with them, get
to know them, and let them know you're really interested.
Nothing but good will come from it."

Three Of A Kind

The Big Three U.S. automakers advance minority subcontracting
awards.

In February, three major automakers--Chrysler, Ford and General
Motors--joined forces to substantially boost minority
subcontracting opportunities. The SBA-supported agreement they
signed, the first of its kind, not only fosters strategic alliances
between minority and nonminority suppliers, but also increases the
current contracting allotment of all three companies combined by
almost half--raising the level to $3 billion over three years.

"The auto companies asked the government to enter into an
initiative with them that would recognize their commitment and
efforts to increase purchases for minority companies," says
Judith Roussel, the SBA's associate administrator for
government contracting. The resulting initiative is an extension of
a program already in existence. Among other things, the
automakers' agreement will encourage first-level (Tier 1)
companies to subcontract with second-level (Tier 2) companies and
provide new business opportunities for SBA-certified 8(a)
firms.

After three years, the SBA and the Big Three will evaluate the
initiative's success and determine whether it should be
continued and expanded.

Wanted: Impressive First Impressions

The firm: Computer manufacturer Gateway Inc., based in
North Sioux City, South Dakota

The slice: This year, the company will increase the
dollar amount it sets aside for small, disadvantaged and
women-owned businesses by 16 percent. Last year, Gateway awarded
contracts totaling several million dollars to more than 1,000 small
businesses.

The criteria: "Whether it's a product or
service, we require high quality, on-time delivery, very good
service and [a good] warranty," says Bob McMaster, manager of
materials process improvement. Gateway also looks for competitive
pricing and a drive to achieve customer satisfaction.

The hook: There are a few, actually. First, you must have
an attractive, professional-looking brochure describing your
products and your company. Second, you need to make a positive
first impression. Third, Gateway seeks small-business owners who
are aggressive, who follow through on commitments, who respond
quickly to requests for information, and who can demonstrate their
superiority over the competition.

The spin: "Know what you're up against as far as
competition goes," McMaster says. "And I think it's a
real advantage to do some research on the company you're trying
to sell to."

The connection: Gateway does the approaching--so
don't barrage the company with phone calls and letters. To find
subcontractors, the company regularly peruses publications such as
the Try Us Directory, a publication of small, minority-owned
businesses, and the Thomas Register of American
Manufacturers. Gateway also relies on local SBA offices and
Small Business Development Centers for leads.

Wanted: The Best Of The Best

The slice: Twenty-two percent to 28 percent of the
company's contracting dollars go to small, disadvantaged and
women-owned businesses. Although actual dollars spent are
increasing, fewer subcontractors are winning awards due to
downsizing.

The criteria: To be a successful AMMC subcontractor, you
must meet the industry's most stringent requirements, including
a 98 percent on-time delivery schedule and zero percent product
rejection over a 12-month period. For products and services that
support the factory, think along the lines of quality and
competitive pricing.

The hook: John Morrow, a procurement director for
Lockheed's AMMC, describes the corporation as "an
expensive operation to do business with." If a subcontractor
can offer creative ideas that will save Lockheed time and money,
procurement decision makers are sure to take notice. Some examples
include warehousing or storing products for Lockheed, or offering
one-stop shopping for products and services other than just your
core function, thus eliminating Lockheed's need for additional
vendors.

The spin: "Don't give up easily, and keep
knocking on our door," says Morrow. "If there's an
opportunity that's compelling, we'll recognize it and allow
a [subcontractor] to bid."

The connection: What makes your product or service
superior to the competition's? Determine that, and you're
ready to approach one of the company's five nationwide
procurement agencies, each of which has a small-business office.
Contact Lockheed's Jim Randle at (817) 762-1603 or Jim.W.Randle@lmco.com

Next Step

Subcontracting Opportunities. For our latest listing, see
"On The Lookout".

Pro-Net. Getting listed in this free, SBA-sponsored,
Internet-based procurement database is a must for any small
business seeking subcontracting opportunities. Federal buyers and
large corporations use it to find the right firm by scanning the
online network of more than 170,000 small businesses, 6,000 of
which are also minority and nonminority 8(a) firms. To register,
visit http://pro-net.sba.gov

CBDNet. Newspaper Commerce Business Daily's site lists
government procurement opportunities and other subcontracting
leads. Access it at http://cbdnet.gpo.gov

Small Business Development Centers. Located in every state,
these centers can assist entrepreneurs with the procurement process
(only one of their many services).

National Association Of Purchasing Management. If you attend
this association's meetings, you can develop important
relationships with the procurement representatives of large
corporations. For more information, call (602) 752-6276.